The alarming increase of household debt in Canada, particularly in Toronto, has not gone unnoticed. It has become a regular topic in media and a concern for economists, public officials, and financial commentators alike. The narrative of the “deadbeat” debtor is changing, with the average Canadian now facing serious debt troubles.
1. Debunking the Deadbeat Debtor Stereotype
Contrary to popular belief, it’s not just the reckless spenders who are drowning in debt in Toronto. Many of those grappling with significant debt trouble are typical individuals and families, leading seemingly normal lives. They are gainfully employed, own homes, and from an outsider’s perspective, appear financially responsible.
However, the reality is different. A significant portion of these individuals are in deep water financially, with their lifestyle funded more by credit than cash flow.
2. The New Normal: Debt Burden Cases
The normalization of excessive debt is evident in the cases that insolvency trustee firms handle daily. A disturbing trend has emerged, redefining what constitutes a “normal” debtor. This new debtor could be a professional with multiple lines of credit, a maxed-out credit card, a substantial mortgage, and two leased luxury cars.
3. The Bigger Picture: Canada’s Household Debt Statistics
Statistics Canada regularly releases data painting a grim picture of the household debt scenario. The household debt-to-income ratio now stands at 169.4, an increase of 23 per cent from a decade ago.
This figure parallels what the U.S. saw at the height of its housing bubble. The Bank of Canada reports that nearly half of all high-ratio mortgages in Toronto were to borrowers with loan-to-income ratios exceeding 450 per cent.
4. The Debt Trap: Causes and Consequences
While the causes for these financial crises are varied and complex, a common factor emerges: a reliance on credit over cash. A decade of low interest rates has fostered a habitual reliance on credit by consumers.
Credit card balances have been creeping up, with many individuals now holding equivalent of $30,000 or $40,000 in credit card debt. The cycle of debt escalates as credit card debt is shifted to readily available lines of credit, ballooning the initial debt out of control.
5. A Reality Check: Financial Management Gone Wrong
One particular case highlights the potential spiral of debt. A self-employed woman in her 50s found her business drying up due to market demands and cost trimming by her clients. Despite warnings from her accountant, she severely mismanaged her business and financial affairs, leading to a dire financial situation.
The specifics of her case illustrate how her lifestyle and business expenses were not in alignment with her actual income, leading to her drowning in debt in Toronto:
Mortgage: $600,000
Mortgage payments: $3,600/mo
CRA lien against house for personal income tax owing: $98,000
Leased car: $51,000 owing
Credit card debt: $75,000
Business loan: $45,000
Outstanding debts to suppliers: $80,000
Business rent owing: $11,000
Net self-employment income: $3,500 per month, or $42,000 per year
6. The Road to Insolvency: Personal Bankruptcy Scenario
In such a scenario, personal bankruptcy becomes the logical solution. This involves closing the business, including any owing source deduction or HST in the bankruptcy filing, and walking away from the house and business.
Although losing a home and business can be devastating, it often becomes the necessary step to free oneself from the shackles of insurmountable debt.
7. The Silver Lining: Alternatives to Bankruptcy
Bankruptcy is not the only solution for those drowning in debt in Toronto. There are possible alternatives, such as a consumer proposal, which is a legal process administered by a Licensed Insolvency Trustee. The trustee negotiates with creditors to reduce the client’s unsecured debt, allowing them to keep their assets while eliminating debt that they could not pay off in a normal course of life.
8. The Debt Crisis: A Nationwide Concern
The issue of household debt isn’t just confined to Toronto. A recent survey by Credit Canada indicated that 28 per cent of Canadians are concerned about credit cards nearing their limits, 19 per cent are having trouble covering household expenses, and 17 per cent lack steady employment.
9. The Call to Action: Seeking Debt Help
For anyone worried about their finances, it’s wise to act sooner rather than later. Consultations with an LIT or a credit counsellor are free and confidential.
10. The Road to Recovery: Debt Management Support
Whether you choose to go for credit counselling, debt consolidation, or a consumer proposal, remember that you’re not alone.
If debts are keeping you up at night, consider picking up the phone and seeking help from financial professionals. Whether you’re drowning in debt in Toronto or anywhere else in Canada, remember that there are options and support available to help you navigate these turbulent waters.
Signs you should consider seeking debt help:
- You regularly miss essential payments on your mortgage, rent, car loan or lease, or utilities such as hydro, gas, water.
- Your credit cards have been maxed out for three months or more and you are not able to make the minimum payments.
- Your arrears payments are assigned to collection agencies; collection action escalates to legal proceedings.
- You are turned down for refinancing or secured loans.
- Your bank account or wages are garnisheed.
- Your loved ones feel the impact of your financial stress.
